China and Rare Earth Metals: The Good, the Bad and the Not as Ugly as It Seems

Rare earths, such as neodymium and lanthanum, are critical components in products such as superconductors, iPods and wind turbines. One of the metals, samarium cobalt, is used in the navigation system for the M1A2 Abrams battle tank, and China is the only country that has samarium cobalt ready and able to export. In fact, China, which possesses slightly over a third of the world’s supply of rare earths, brings on line well over 90 percent of all rare earths, filling not only its own needs but also those of the rest of the world. Most countries, such as the United States, moved out of the dirty, expensive business of mining these metals years ago when China started to ratchet up its production, doing it more cheaply, of course, than anyone else.

The official reason—and it makes sense—is that China is worried about its environment and its own future supply. It estimates that if it doesn’t take action, it won’t have any rare earths left in 20 years. Since 2006, Beijing has also been taking steps to centralize the industry, forcibly closing one small mine after another, both to help keep prices high and to protect the environment. Of course, another plausible explanation is that keeping rare earths at home will force foreign companies to continue to invest and base their manufacturing in China. Japan has also been complaining that shipments have stopped entirely, suggesting that there may be some merit to the claim that China is enforcing an outright ban—rather than a cut—in rare earths to Japan, as punishment for its tough response in the East China Sea .